Life Insurance Advisors: directory of firms

Term matches coverage to a period of financial dependence: the years the mortgage runs, the years until the children finish school, the years until a retirement plan is funded. Because it has no cash value, the same death benefit costs a fraction of a permanent premium, which is what allows a young family to buy a limit large enough to matter.

Permanent coverage is for needs that do not expire: a lifelong dependant, estate liquidity, a business succession, a funeral. The cash value is a secondary feature, not the reason to buy, and in the early years it grows slowly because the cost of the policy is loaded at the front. Many policies also carry a conversion right, letting you change term coverage to a permanent policy without new medical underwriting, which is worth confirming before you buy and worth using if your health changes.

Insurance companies use a process called underwriting to decide whether to sell a policy, and it commonly includes a medical exam and questions about your health, job and habits. Expect a detailed application, authorisation to pull prescription and claims histories, and often bloodwork and a paramedical visit. The answers place you in a rate class, and the gap between the best class and a substandard rating is large.

Two practical points. Accelerated programs now issue some policies without an exam, using data instead, and they are faster but not always cheaper for a healthy applicant. And answering the application accurately matters more than the exam does: a misstatement discovered later is precisely what the contestable period exists to catch.

Life insurance policies have a two-year contestable period. If the insured dies within it, the company may review the information given on the application, and if it finds that wrong information was given or something was not disclosed, it can deny payment. Once the policy has been in force for more than two years, the company must pay the death benefit regardless of the cause of death.

Alongside that, during the first two years companies usually will not pay the death benefit if the cause of death is suicide. Neither provision is a trap so much as a reason to complete the application yourself, carefully, and to correct anything an agent has filled in on your behalf. Tobacco use, a medication, a diagnosis or a dangerous hobby left off the form is the most common reason a family finds out about this rule the hard way.

Term premiums are straightforward: a fixed amount for a fixed period, with a sharp increase if the policy continues past the level term. Permanent policies are quoted with an illustration, and an illustration is a projection, not a promise. Ask for it run at the guaranteed rate as well as the illustrated one, and look at what happens to the policy in the years after the premiums stop.

Commission on life insurance is heavily front-loaded, especially on permanent policies, which is why the pressure toward permanent coverage can be strong even when a term policy covers the need. That is a reason to ask how the advisor is paid, not a reason to distrust the product. A producer being paid by commission is normal; refusing to discuss it is not.

Replacing an existing policy restarts the contestable period and the suicide clause, resets the acquisition costs, and re-underwrites you at your current age and health. Sometimes that is genuinely the right answer. Often it is not, and it is illegal for an agent to replace a policy just so the agent can earn a new commission. Ask for a written comparison of the old and new policies before anything is signed or cancelled.

The other recurring problem is a policy nobody can find. Families lose track of coverage bought decades earlier, and premiums stop when the policyholder can no longer manage them. Keep the policy number, the carrier's name and the beneficiary designations somewhere your executor will look. Where a policy is suspected but cannot be located, the NAIC operates a life insurance policy locator service to help beneficiaries find unclaimed policies.